Simple Fundrise eREIT Analysis

Roughly two years ago, I became interested in Real Estate Investment Trusts (REITs) and subsequently invested in a couple of them. This was for a couple of reasons: (1) to diversify my portfolio exposure in an easy and passive way (as opposed to purchasing and managing an actual real-estate property), and (2) to earn a higher income in the form of dividends.

The thought of investing in REITs came from reading personal finance websites, as many of my personal finance expansion thoughts do. And now the thought of contemplating a new product known as electronic REITs or eREITs has been fueled from reading personal finance websites.

First, what is an eREIT? An eREIT is a mixture of a REIT, investments in a whole bunch of properties, AND you can see which properties you are actually investing into.

Fundrise is a company that uses crowdfunding (i.e., pooling money from a bunch of investors, the crowd, to raise capital and purchase and renovation of properties).

Fundrise As An Investment Company

Fundrise was founded in 2010 and is headquartered in Washington, DC.

Fundrise has returned the following results for its investors: 2014: 12.25%, 2015: 12.42%, 2016: 8.76%, and 2017: 11.44%.

What’s great is you don’t have be an accredited investor, that is, someone with a net worth, not including home equity of over $1,000,000. You can be an accredited investor through demonstration of high income earned as well.

Fundrise’s fees are 0.85% annually. In addition, there is also a 0.15% investment advisory fee, which it states “may be waived under certain circumstances.” This does seem like for a REIT, but then again, this is an eREIT.

One can make the argument, that the high fees charged by Fundrise are offset by the larger yield as compared to regular REITs. In continuing the comparison above with Vanguard’s Total Bond Market Index Fund (VBMFX), it has a yield of 2.63%, compared to Fundrise’s Supplemental Income eREIT with dividends of 7.0-7.7%, a spread of ~5.07%. VBMFX’s expense ratio is 0.15%.

Fundrise’s eREIT Plans

Fundrise offers three eREIT products that it calls Advanced Plans:

Supplemental Income – focuses on high dividend payout, therefore has a high ratio of debt vs equity investments

Balanced Investing – has a balanced approach of debt and equity investments

Long-Term Growth – has a higher amount of equity investments, thus a lower dividend payout as compared with other plans. However, the plan has the potential for higher appreciation of its underlying investments.

Here’s a visual representation of the comparison provided by Fundrise:

After answering a few basic questions such as real-estate investing experience, age, amount of investment and how long I can go without access to my funds, Fundrise recommended the Long-Term Growth Plan to me. The overall annual return of ~10% does appear attractive.

eREITs VS REITs

Here are some differences between eREITs as compared with traditional REITs

eREITs are less liquid than REITs – you can buy and sell many traditional REITs on an exchange with the click of a button and quick settlement. With eREITs, you cannot and there is a waiting period to get your cash into your account.

eREITs have greater transparency in terms of which properties they are investing into. With REITS, your investment is with the investment trust itself, which in turn invests into real estate properties.

In continuing with transparency, here’s a screenshot from some of Fundrise’s Balanced Investing Plan’s projects:

Here’s an example of what one looks like so you know you’d be investing in a real project:

Illiquidity, Deregulation, and Taxes

Since it is not traded on a regular exchange, you cannot cash out your eREIT position on any given day. Instead, per their website, “an investor may obtain liquidity monthly, following a minimum 60-day waiting period after submitting their redemption request.” It’s still at the ultimate discretion of the Board of Directors, a risk outlined by FINRA for non-traded REITs.

It’s a big consideration if you will need your investment soon, or if you are not comfortable with locking up your investments for a period of time.

And because they are not traded on a regular exchange, eREITs are not subject to the filings mandated by the SEC and certain safeguards like an independent board of directors and audit activities.

You cannot buy eREITs inside of a retirement account as you can with REITs. This means that the income from your eREITs will be taxed right away and at ordinary income tax rates (which is higher than taxes from dividend income on stocks).

It was fun analyzing Fundrise’s eREIT options. As far as taking the dive and trying them out, that is still yet to be determined.

What’s stopping me? I need to first look at my present real estate allocation percentage and see whether balances are appropriate for my investment objective. I’m invested in a couple of REITs so will need to see if it makes sense to replace the REIT or acquire shares of an eREIT. What’s not stopping me is the illiquidity feature. I plan to invest an stay invested for the long-term. The fact that Fundrise’s eREITs can be acquired by non-accredited investors, coupled with it’s brief, but positive performance provides a level of comfort for its forward-looking prospects.

Join The Discussion:

Do you own eREITs from Fundrise? If so, what’s been your experience?

Do you believe in active or passive real-estate investing?

What percentage of your portfolio is comprised of real-estate investments?

I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

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2 thoughts on “Simple Fundrise eREIT Analysis”

I’m not much of a real estate investor SMM. Beyond my primary residence, I own a few traditional REITs like you. Thanks for comparing and contrasting them with eREITs. It was interesting. TomTom recently posted…Has Target Found the Bulls Eye Again?